(Adds details, background)
NEW YORK, Sept 1 New York Governor David
Paterson on Tuesday signed an executive order that will enable
the troubled New York City Off-Track Betting Corp to file for
bankruptcy as a municipality.
The order will allow the state-owned OTB, to file for
Chapter 9, the part of the federal bankruptcy code that applies
to municipalities and allows them time to restructure without
being forced into liquidation, Paterson told a news
New York State took control of the OTB from the city last
July. In June, Paterson appointed Meyer Frucher head of the
organization, which employs 40,000 people across the state.
Frucher ran the Philadelphia stock Exchange for a decade
before it was sold to Nasdaq in 2007 and has held positions
with the administration of former New York Governor Mario
A complete shutdown of the OTB would cost more than $600
million, Frucher told the news conference.
"A shutdown is unthinkable," he said.
Chapter 9 filings have been rare, with only 186 filings
between 1980 and May 2008. The bulk of them were municipal
utilities and special districts, according to data from Chapman
and Cutler bankruptcy law expert James Spiotto. The biggest was
Orange County, California, the sixth-largest U.S. county by
population, which filed for bankruptcy in December, 1994. For
more, see [ID:nN23315766]
The OTB was set up as a public benefit corporation in 1970
to raise money from pari-mutuel betting for New York City, the
state and the horse-racing industry. In pari-mutuel betting,
all bets of a specific type are pooled, with the house
subtracting its "take" before paying the winners.
Despite taking more than $1 billion in bets every year, the
OTB has been unable to cover its operating costs for years and
has accrued liabilities of $220 million.
Adding to the gloom are unfunded liabilities of more than
$500 million, most of it related to employee retirement, health
and other benefits.
Under Chapter 9, the OTB will seek agreement with its
lenders to submit to the court a prepackaged bankruptcy that
includes issuing about $250 million in bonds.
The funds would be used to pay existing debt, manage
pension and health benefit commitments and recapitalize the
business, said Frucher.
The OTB is planning to overhaul its business model,
renegotiate with its unions, upgrade technology and end leases
at underused betting parlors.
"We want this to happen quickly because we will run out of
cash some time between the end of December and end of March,"
Since its creation, the OTB has generated more than $4.5
billion for state and local governments and the horse racing
industry, said Paterson.
New York state has more than 500 horse farms. The New York
City OTB handles about half of the total amount of money bet on
horse racing annually in the state, he said.
(Reporting by Ciara Linnane; Additional reporting by Elizabeth
Flood Morrow in Albany; Editing by Dan Grebler)